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Altice France’s CDS auction will take place today, drawing a line under three months of speculation about what the final payout would look like. You can watch this take shape from 11am UK time, when the initial bidding results will be published here.

However, the methodology changes and the time spent addressing the telco’s contracts will remain hot topics well after today’s 3pm final price. Not least of all that’s because many market participants involved will still have to fulfil the physical settlement requirements of the process in the coming days and potentially into October.

This is only the second credit event auction of 2025, after one in January for Intrum, although even that auction was really a spillover from 2024 since the EMEA Credit Derivatives Determinations Committee elected to delay it from December.

Altice is a big test for credit derivatives either way, and may mark this year as a defining time for the asset class. In fact, last week’s sudden fast-tracking of the Altice auction has sparked urgent debate among traders and lawyers, many of whom have seen disarray in the process — and wish to avert this in future credit events.

“The corporate CDS market is facing structural challenges amid a wave of increasingly complex liability management exercises [LMEs] and aggressive restructurings,” said Sergio Grasso, senior investment advisor at iason. “The EMEA DC continues to apply ISDA rules, but recent cases like Altice and Ardagh reveal growing tension between legal formalism and economic substance.”

But some give the DC credit for trying to avert potential problems that might arise — and it may turn out useful knowledge has been gained. As another potential test looms in Ardagh, attention is not only on the improvised fixes for Altice but also the bigger question of how the auction process can be hardened against future lock-ups, deadlines and liability management exercise (LME) tactics that risk throwing settlement off course.

High speed connection

The DC’s announcement last week (21 August) it would scrap its previously entertained cash settlement fallback for Altice CDS contracts left many market participants perplexed. Part of the disquiet stemmed from a view — shared by several 9fin sources — that the DC had at least two credible solutions from the outset to deal with the telco’s bond lock-up and creditor coop agreements. Why then the attempt to experiment on such a high profile credit event with wide market exposure?

“The CDS market needs a robust auction system with clear timelines and valuation procedures that cannot be influenced or improvised by a group of, more equal than others, market participants,” said Carlos Pardo, independent derivatives lawyer. “This type of U-turn, announcing and then abandoning cash settlement, three months after the contract has been triggered, would be unthinkable in any other market and would raise concerns for all kinds of regulators. There is a lot of money at stake and it is crucial that ISDA finds a permanent solution to eliminate or at least reduce the arbitrariness that they admitted in their July lock-up proposal.”

The first option would have been to do what it has ended up doing now. This method — combining scheduled auction, notices of physical settlement, and an asset package delivery process — is one it has had open to it for many years. In fact it’s a variation on changes the market started bringing in from 2014 onwards for financial and sovereign CDS settlement, as we discussed here.

Another option some buyside firms proposed early on — mindful of complications that would arise — was for the DC to delay holding a credit event auction until after Altice’s October restructuring implementation date. That approach, following the precedents set by previous Steinhoff and Portugal Telecom credit events, would have allowed old (restricted) Altice bonds to be exchanged for new (unrestricted) bonds and make for a cleaner, unencumbered CDS settlement process — see here and here for the DC’s treatment of those.

The DC has not commented on the matter — and only communicates publicly through its website updates (it has been careful to document the 22 meetings it has had on Altice and when). But from talking to market participants, 9fin understands the most likely reason the DC looked past both the mentioined approaches is that they relied on Altice completing its restructuring in a reasonable time. While the schedule appeared mapped out for October, that could have been delayed at some point, for some reason, and for an unspecified amount of time.

It is also possible — and likely — the DC wasn’t just thinking about Altice. The circumstances around Ardagh’s debt exchange plans make for even more perilous CDS settlement. Should a credit event even be triggered (and that’s still in the balance), it might not be a popular choice with DC members to wait until after its restructuring happens, because at that point all junior debt deliverables will be equitised.

This combination of factors may explain why the DC found it preferable to use the time before Altice’s restructuring to trial a new approach. This built on ISDA’s 3 July proposal to deal with lock ups. Key considerations were that the proposal was still in feedback phase, while Altice presented a real world example of when these ideas could be applied. The DC used the opportunity to collect its own feedback on whether they worked.

"The comment period was useful, as it forced people to look at the proposed solution,” said Fabien Carruzzo, partner at law firm HSF Kramer. “Maybe it was a bit of a rush, but it’s much easier to get everyone’s attention, focus and real way of thinking when it’s a live situation rather than theoretical, because it provides an incentive.”

One potential shortfall identified in ISDA’s proposal is that it addresses lock-ups but may not effectively do so for assets also subject to a co-op agreement, where different criteria may apply. The DC’s deliberations had been complicated by the fact that over 95% of Altice France deliverable obligations are subject to a restructuring framework agreement between the company and its creditors. Some obligations are also subject to creditor cooperation agreements. Together this means the vast majority of Altice bonds face restrictions.

9fin understands ISDA is working to synthesise the comments it has received through its feedback round, but also may raise the Altice approach as well for discussion when it begins plotting a path forward from September.

A complication looks to still apply for the chosen asset package delivery method, although it remains to be seen how material this proves. That centres on the possibility packages may contain Altice equity, which some participants may not be able to hold — meaning they may have to opt against physical settlement (possibly exiting positions in advance) or be able to sell the equity immediately on receipt.

What seems clear is Altice France has become the latest flashpoint in a debate that is shaking the foundations of the CDS market. What was once billed as a rules-based system for orderly payouts is now straining under the weight of lock-ups, LME tactics and improvised DC fixes, leaving traders and lawyers alike questioning whether credit derivatives can keep pace with the debt defaults and restructurings they are meant to hedge.

“The CDS market has experienced many challenges in its relatively short life,” said Orlando Gemes, chief investment officer at Fourier Asset Management. “Unfortunately, rather than addressing these challenges, the leading market participants seem to have wilfully failed to address these problems including consistency, predictability and transparency.”

A knock on of this has been less liquidity in single names, and in turn a failure to create new CDS contracts for some of the most traded high yield bond names.

“Altice may be the best example of these failures, which has resulted in CDS becoming a marginalised instrument,” added Gemes.

At the same time, as Grasso points out, there is a growing feeling that modern debt tactics — uptiering, selective participation, side agreements, and lock-ups — are being used to deliberately avoid CDS triggers, even in situations of clear financial distress. This undermines the core purpose of CDS: to provide reliable credit protection.

“The result is mounting uncertainty for CDS investors, eroding the trust in the product,” added Grasso. “The CDS market risks becoming obsolete.”

For Altice, protection holders must get ahead of the physical settlement challenge by delivering Notices of Physical Settlement (NOPS) on 29 August. There is a staggered deadline throughout the day to address the circularity of RAST transfers, with 2pm (UK time) for ‘eligible market participants’ delivering to ‘participating bidders’, 4pm for participating bidders delivering to other participating bidders, and 6pm for ‘participating bidders delivering to eligible market participants.

The DC says claims this will reduce the need for participating bidders to subsequently amend their NOPS to reflect the deliverable obligations being delivered to them.

There will be further staggering in physical settlement dates for these three types of transfer, respectively on 2, 4, and 8 September.